Waiting for a VAT Registration Number – Is it Business as Usual?

According to SARS’ website, one of the most frequently asked questions is whether vendors can continue trading, while waiting for their VAT registration to be finalised. While the website provides a simple YES to the question, the answer is much more complex.

Neither the 1991 Value Added Tax Act (VAT Act), nor the Tax Administration Act of 2011 (TAA) provides clear guidance regarding the options available to vendors while waiting for their VAT registration to be finalised – a process that currently may take six months or even longer to finalise.

The VAT Act defines a vendor a as person who is registered or is required to be registered for VAT. This means that where person is required to be registered but is not yet registered, that person is still a vendor in terms of the VAT Act.

The VAT Act provides that any vendor should levy VAT on goods or services supplied as soon as the vendor is required to be VAT registered, or commences trading. In other words, it follows that even if not registered, a vendor should levy VAT. Therefore, a vendor is obliged to levy and collect VAT and submit VAT returns. However, the process is flawed as only registered vendors are entitled to issue tax invoices as required by the VAT Act.

What are the options available to trading vendors that whilst waiting for a VAT number?

The first option is to levy and collect VAT from customers. The implications are that:

the document issued will not comply with the requirements of a valid tax invoice as it does not contain the vendor’s VAT number

customers will not be able to claim the input tax since they are not in possession of a valid tax invoice

the vendor is unable to submit a VAT return and remit the VAT it levied and collected as it does not have a reference number to do so

the vendor will be exposed to possible penalties and interest that may be imposed by SARS when he is finally allocated the VAT number

on a positive note, the vendor will be in possession of the VAT inclusive amount and will not have to finance the VAT it has not received.

The second option is NOT to levy and collect VAT from customers. The implications are that:

since the vendor is obliged to levy VAT, the amount charged by the vendor to the customer without levying VAT will be deemed to be inclusive of VAT

the VAT amount will therefore have to be financed out of the vendor’s profits

the document issued will not comply with the requirements of a valid tax invoice as it does not contain the vendor’s VAT number

the customers will be unable to claim the input tax since they are not in possession of a valid tax invoice

the vendor will be exposed to possible penalties and interest that may be imposed by SARS.

Be proactive

Until SARS provides proper guidance on how vendors should proceed whilst waiting for VAT numbers, we can only recommend that vendors apply for VAT registration well in advance to avoid being trapped in this VAT registration maze. Alternatively, seek guidance from a tax professional early in the process to avoid costly mistakes.

Comments...

I understood that the vendor may issue a tax invoice, indicate on it that the VAT registration is pending and later issue a proper tax invoice to the customer after receiving a VAT number. It goes without saying that the customer should not attempt to claim input vat on the first invoice pending VAT registration but only on the new, proper tax invoice. The new tax invoice will be dated in the current VAT period and therefore no penalties will be levied and no interest will be applicable.
Please advise whether this approach is correct.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.